INSIGHTS

On July 17, 2024

U.S. Equity Markets & the Potential Implications of the November Elections

In the second quarter of 2024, the S&P 500 Index appreciated by 4.2%. For the same period, the Nasdaq rose by 8.3%. Semiconductor stocks, particularly in the artificial intelligence segment, led the market higher, while only three of the 11 GICS sectors exceeded the overall S&P 500 return for the quarter. As seen below in Table 1 below, the Information Technology sector rose by 13.8% followed by the Communication Services sector with a 9.4% advancement and Utilities, which increased by 4.4%. The AI (Artificial Intelligence) theme broadened out to include utility stocks, particularly utility companies with nuclear fleets located in the same geographies of data centers.

Source: Factset Research. Past performance does not guarantee future results.

Market breadth narrowed further since the trend began in 2023. In the Information Technology sector, for example, only the equities of semiconductor companies beat the overall market while software companies were generally flat. To underscore that point further, only 25% of the S&P 500 constituents beat the index return for the quarter while 60% of index stocks were in the red overall. Chart 1 illustrates this divergence as the S&P 500 Equal-Weight Index fell 3.1% in the second quarter.

Chart 1 2Q 2024 Performance
S&P 500 Index vs. S&P 500 Equal Weighted Index

Source: Factset Research. Past performance does not guarantee future results.

Looking Ahead

The S&P 500 for the first six months of 2024 achieved a 14.5% appreciation which represented the best first half of an election year in 50 years. Historically, when the market has been up 10% or more during the first six months of the year, the remainder of the year has been positive 80% of the time and averaged an 8% gain in the second half. Regarding the election, the market may be baking in a Trump victory, especially in the swing states polls. What could be more important is whether both the House and the Senate flip toward Republican rule.

The political implications for the stock market could come down to maintaining a 21% corporate tax rate versus a proposed increase toward a 28% rate. In addition, a change in capital gains taxes may also be held in check. The same also goes for a potential tax on stock buybacks. Regarding health care, some Affordable Care Act subsidies have expired, which has resulted in prescription drug prices becoming an election issue. In the end, a political change could have positive implications for managed care and pharmaceutical companies.

The U.S. economy has remained resilient, especially after recession calls going back over two years when bond yields inverted. S&P 500 earnings for 2024 are forecasted to rise 11.4%. When all results are finally in, the second quarter earnings window may ultimately end with an increase of 9.2%. While still too early to tell, earnings results within three sectors (consumer staples, industrials, and materials) could be negative, while the remaining eight economic sectors could post 5% earnings growth once the second quarter is finalized.

CRN: 2024-0717-11837 R

The opinions and views of this commentary are that of Brentview Investment Management and are not necessarily that of Advisors Asset Management.

Any forecasts or opinions expressed herein are Brentview Investment Management's own as of July 11, 2024 and are subject to change without notice. This information may contain, include, or is based upon forward-looking statements. Past performance is not indicative of future results.